Nobody saw it coming
So the RBA pulled a swifty on markets on Tuesday and announced that they were going to print another $100bn.
Nobody saw it coming.
And this is actually unusual. The RBA doesn’t normally like to surprise markets. They like to keep the whole farm pretty calm generally.
That normally means that when the RBA does move – like when it cuts interest rates – most people won’t be too surprised. There will have been murmurings. People will have been talking the chances of a rate-cut up. It’s commonly believed that some journalists get ‘leaks’ from the RBA – hints and suggestions about when and what the next move is going to be.
And so when the RBA does do something, it’s never a total surprise.
But not this time. Oh boy.
I generally watch what people are saying pretty closely, but literally nobody was talking about the RBA DOUBLING it’s money-printing program.
Everyone is all focused on interest rates, but they’re not going anywhere.
The real question was what was the RBA going to do with the Term Funding Facility, which gives banks cheap credit to lend out to households and business, and what was going to happen to the banks money printing program.
Back in September they launched a bond buying program (where they would print money and buy government bonds, thereby gushing liquidity into the system). They set about printing $5bn a week, with a commitment to hit $100bn sometime around April.
Well, that was September and now is now.
And I think you’d have to say that the economic outlook is a whole lot better than it was in September. A lot better actually.
On pretty much every measure you can name (GDP? We’re out of recession. Unemployment? Elevated, but not crazy, and moving in the right direction. Inflation? Going nowhere. Retail sales? Booming.)
On pretty much every measure you can name, we have come in way ahead of expectations.
And so that’s why nobody was talking about the RBA doubling down with another $100bn.
If anything, people were wondering if we might see the RBA shift to a slightly tighter stance – rule out any further printing, or wind back the TFF.
But no, they went the other way.
And what’s super interesting for me is that they were happy to totally wrong-foot markets on it.
They were happy for it to come as a total surprise.
Which makes me think that this haymaker was aimed squarely at the exchange rate.
With everything ticking along nicely domestically, one of the key risks was an appreciating exchange rate – especially as we stand on the cusp of another mining boom.
And with major economies around the world printing more and more money, the RBA would have stood alone as the only central bank in the world not printing money. That is, with every other nation debasing their currency, the Aussie dollar would boom.
The RBA couldn’t let that happen. What? We would challenge the US dollar for Reserve Currency status?
No, they needed to make a splash.
And so we get another $100 bill.
But that’s where it gets interesting. Because now we’ve got a flood of cash heading into an economy that on most measures is actually doing pretty well. That is, we overcook the economy to save the currency.
And what do you want to be doing if that happens? What do you want to do in an overcooking economy?
Owning domestic assets.